Welcome to Million Dollar Journey! If you're new here, you can learn about me, read our user guide, and even follow my net worth updates. A great place to start reading is with the popular articles located in the right side bar. If you would like to join thousands of others and keep up with the free daily updates, you can subscribe to the RSS feed via reader or E-mail.

On your way out, make sure to check out the exclusive Million Dollar Journey Freebies and Deals.

Top Canadian Discount Brokerages with U.S. Dollar (USD) RRSPs

A popular article that I wrote when I started this blog was a comparison of Canadian online stock brokerages. One aspect of discount brokerages that has become increasingly more important is whether or not it offers U.S Dollar registered accounts (RRSP and/or TFSA).

Why are USD RRSP/TFSAs Important?

If you’ve traded USD stocks in your CAD registered account, you may have noticed that it is automatically kept in Canadian currency. While this seems fine, there is a hidden Forex (FX) fee that the brokerage charges, and it can be as high as 2% per trade.

For example, say you have an RRSP with CIBC Investors Edge which does not offer a USD RRSP (as of today – Nov 2013), and you wanted to purchase $5,000 worth of Proctor and Gamble (PG) shares for your RRSP. Estimating CIBC’s FX rate to be close to 2%, it would result in a hidden fee of $100 for the trade in addition to the regular trading commission. That’s not all, when you sell, you’ll be dinged the FX fee again in addition to every USD dividend received (quarterly). I know, it hurts.

So what’s the solution? Open an account with a discount brokerage that allows registered accounts to settle in US dollars. While most discount brokers allow a “wash trade”, which is where the proceeds of a US stock sale will get transferred to a US money market fund to be used later, this is typically not an automated process and higher telephone trading fees may apply. To me, I’m not a fan of waiting on the phone to reach the trade desk (and pay extra), so automation is a big factor for me.

So the next question is, which discount brokers offer U.S. Dollar RRSPs/TFSAs and how do they stack up?

U.S. Dollar RRSP Discount Brokerage Comparison

1. Royal Bank Direct Investing

RBC coming out on top caught me by surprise as the big banks are known to be a bit slow innovating their existing products. Like the others on the list, they offer a USD RRSP at a reasonable cost. However, what sets them above the rest is automation.

Say you have some CAD in your RRSP, and you want to convert it to USD without paying the high FX fee. In this scenario, if you purchased USD stock with CAD, you’ll be dinged with FX fee. One of the best ways around this is trading the DLR/DLR.U strategy which will allow a low cost conversion of CAD to USD prior to making the trade. One setback of trading DLR/DLR.U is that most discount brokers require a phone call to journal DLR/DLR.U shares from CAD to USD. RBC Direct Investing, as a reader pointed out, will automatically journal shares over to the US side of the account.

This is my number one choice for accounts that have greater than $50k balance. This is the point where annual fees are waived and trading commissions are reduced to $9.95/trade. For investors just starting out with smaller accounts (ie. less than $50k assets with RBC), this may not be the best choice.

There’s a reason why Questrade is voted the best discount brokerage among Million Dollar Journey readers. While they have had their challenges, they are extremely competitive with pricing and features. Questrade’s USD RRSP (which we use for my wife’s RRSP) has no annual fee (providing a $5k balance is maintained) and they do not require a minimum balance to qualify for their low commissions.

Combined with commission free buying of ETFs, this is a strong overall offering and is likely the best bet for an investor just starting out. The downside is that to journal DLR CAD shares to DLR.U USD shares, it requires an online chat with their support, or a telephone call to their trade desk (no telephone trading fees for journaling). Read my full review of Questrade here.

BMO Investorline gets a lot of priase from GlobeInvestor and steadily ranks among the top three discount brokers in Canada. BMO does not charge any annual fees for their USD RRSP providing that the account has at least $25,000 in it. Once it dips below, the fee is $100/year. The commissions are high ($29/trade) unless you have $50k in the account at which time trading commissions will drop down to $9.95/trade. The commission structure is very similar to RBC Direct Investing. Like most discount brokers on this list, BMO requires a phone call to journal shares.

Qtrade is always popular with GlobeInvestor for their customer service. For investors just starting out, they charge $19/trade, but decreases to $9.95 once the account reaches $50k. For active traders making 30-149 trades/quarter, the fees are $9.95/trade and 150+ trades/quarter gets the preferred rate of $7/trade. While they get good ratings, that’s where the appeal stops with me. They charge $50/year for a USD RRSP regardless of account balance, and another $50/year if the account is less than $15,000. In addition, investors need $50k to qualify for their $9.95/trade commission (regular $19/trade).

USD RRSP/TFSA Annual Fees: $50/yr in addition to another $50/year is assets are less than $15,000.

Virtual Brokers has very low trading fees and not many stock brokerages out there can compete with $0.99 trades. While they do not appear to have a minimum balance/asset requirement, they do charge $50/yr for their USD RRSP. The $50/year fee for no minimum balance is an acceptable trade off, however, what kills this deal is that they do not allow for journaling of shares. This means that VB clients are stuck with using VB default FX rates which can really add up over time. Read our review of Virtual Brokers here.

USD RRSP/TFSA Annual Fees: $50/yr in addition to another $50/year is assets are less than $15,000.

Commissions: $0.01 per share (min $0.99 and max $9.99/trade including ECN fees) or $6.49/trade not including ECN fees.

Final Thoughts

There you have it, five discount brokers that offer USD RRSPs. The ability to hold USD in your RRSP can really help reduce FX fees and works especially well for those who practice portfolio tax allocation. Out of the five list USD RRSP offerings, there were two companies that stood out. My criteria are low to no annual fees, low commissions and automated journaling of shares where possible.

For investors with larger accounts ($50k+), I think that RBC Direct Investing offers the best product with no annual fees, $9.95 trades, and automated journaling. RBC may not be the best deal for investors with smaller balances though where the trading commissions jumps to $29/trade. For this group of investors, Questrade may be the best bet. Providing that you have $5k in the account, there are no annual fees, and $5/trade (no commission for buying ETFs). The downside of course is that you’ll need to contact their support to journal your CAD shares to USD.

The one downside that I see for RBC is non availability of TD e-series mutual funds. I consider TD e-series to be bread and butter of small investors. So the strategy I use now is to put monthly savings into TD Waterhouse, buying e-series index funds (canadian, US and world). Once the amount reaches 10000, I transfer it to RBC, convert two third to US dollars and buy Vanguard ETF (VTI and VXUS). Rest one third in canadian dollar is used to buy Vanguard Canadian Index (VCE)

Nice roundup. My own experience with InvestorLine is that I have not been charged any telephone trading fees related to calling them while using the DLR/DLR.U trick. A complication is that it seems impossible to trade DLR.U with online trading at InvestorLine. I’ve been told that if you use some other inter-listed stock, the journaling is done automatically, but I can’t confirm this.

@Manish, I agree that TD e-series is a great low cost product for new investors. However, with the advent of commission free ETFs, new investors can now buy a well diversified indexed ETF portfolio for even lower cost.

@Michael James, thanks for the feedback. If journaling of interlisted stock is done automatically, can you sell online immediately after without a telephone call?

BMO: telephone call not required – you can send them a message from directly in your account; Also, if you settle in USD, then no journalling is required at all – trades automatically go to the USD side of the RRSP account.

@Michael James: If you reader is using the proceeds before the settlement date, and he doesn’t have enough $$$ to cover the new buy, then interest is charged. I ran into problems when I sold on my CDN side and used the proceeds to buy on the USD side before settlement of the CDN side. Think of it as two different accounts. One had a negative balance until you can transfer the $$$ to cover the trade. You can’t transfer the $$$ until the first trade settles. If you transfer early, then you are borrowing money – on margin. Normally if it’s all in one account that’s fine if everything is in one account.

I have accounts with BMO IL and RBC DI and while they are similar and competitive (both have 9.95 trades now) I would say the RBC’s DI site is much better for day to day use. Timeouts and extra clicks in the UI with BMO are annoying.

I would love to see a follow-up review for Canadians looking to use a brokerage that has USD registered accounts *and* API capabilities so we can do all the fancy charting, RT scanning and backtesting natively like they can in the US with TradeStation for example. With my accounts in our big banks, I’m having to use TMXMoney for RT quotes and TC2000 Gold for charting and screening… and still no proper trade ledger, backtester or newsfeed integration. sigh!

The articles posted on this Canadian Personal Finance Blog are the opinion of the author and should not be considered professional financial advice. Please consult a financial professional before even considering using the information obtained from this blog.